Employers may choose to use a simplified employee pension plan (SEP) IRA to help their employees save for retirement. Unlike a 401k or 403b plan, which severely limits the employee's ability to withdraw money before age 59 1/2, SEP IRAs permit you to liquidate your account for any reason. However, liquidating your SEP IRA before age 59 1/2 counts as a nonqualified distribution, meaning you will owe an early withdrawal penalty unless a special exception, such as post-secondary education costs, a permanent disability or medical expenses over 7.5 percent of your adjusted gross income, applies.

Request a distribution for the balance of your SEP IRA from the financial institution that holds your SEP IRA. You do not have to give a reason for the distribution, and your employer cannot prevent you from withdrawing the money.

Keep records of how you spend the money if you plan to claim an exemption from the early withdrawal penalty for distributions taken under age 59 1/2. For example, if you plan to use the exception for medical expenses over 7.5 percent of your adjusted gross income, keep all your medical receipts to show your expenses in the event of an IRS audit of your tax return.

Complete Form 5329 when you file your income taxes if you are under age 59 1/2 when you liquidate your SEP IRA. This form calculates your early withdrawal penalty for liquidating your SEP IRA or documents your exception from the penalty.

Report the amount of your SEP IRA liquidation on line 15b of Form 1040 to include it in your taxable income. If you owe an early withdrawal penalty, report that amount on line 58. If you had money withheld from your liquidation for federal income taxes, report that amount on line 61.